ADM Projects Lower Ethanol Margin in Fourth Quarter as Oil Falls

Archer-Daniels-Midland Co., the world’s largest corn processor, said ethanol margins will be “softer” in the fourth quarter as oil prices decline.

“Ethanol margins basically were very healthy in the third quarter and then they dropped significantly as inventories climbed,” Juan Luciano, Chicago-based ADM’s chief operating officer, said during a conference call with analysts today. Ethanol margins in the fourth quarter are expected to be “a little bit lower” than in the third, he said.

Ethanol, which ADM makes from corn in the U.S., is used as a cheaper fuel additive to gasoline. Lower petroleum prices and a smaller spread between gasoline and ethanol can erode demand for the alternative fuel above the government-mandated renewable fuel standard in the U.S.

Oil prices fell to a three-year low today as global demand growth slows. The difference between ethanol and gasoline is the smallest since April.

To counter potentially lower oil prices and demand for ethanol, ADM is working to identify ways to increase exports and encourage the use of higher ethanol blending levels in the U.S., David Weintraub, a spokesman for ADM, said in an interview today.

“Corn processing profitability will likely moderate on the back of weakening ethanol profitability owing to declining petroleum prices,” David Driscoll, a New York-based analyst for Citigroup Inc., said in a report today.

ADM today topped analysts’ average third-quarter profit estimate partly because of higher ethanol margins. Corn processing earnings for the three months through Sept. 30 benefited as bioproducts more than double to $185 million from $72 million on “solid” ethanol demand and margins, according to the statement.